This week I had the opportunity to interview Chris Wagner, Executive Vice President and co-founder of NeuLion on how to produce, manage and deliver television content to TV viewing devices throughout the world using Broadband Internet connections. Chris explained that Internet IPTV systems allow companies to become global television service providers without the need to setup and manage their own broadband access connections. This means that almost any company that wants to become a television service provider can become one in a short time period and deliver high-quality content throughout the globe. As of 2007, there were more than 216 million broadband Internet connections throughout the world and projections show that there will be more than 413 million broadband users worldwide by 2010 [In-Stat Market Research]. 

Internet IPTV systems have programming sources, distribution systems and viewing devices. Programming sources may be live media sources (e.g. sporting events) or stored programs (e.g. movies). Distribution systems may use download or streaming transmission.

 Viewing devices may include multimedia computers (via media players), televisions (via set top boxes) and IP televisions (televisions that only have a data connection).

Figure 1.1 shows the basic parts of an Internet IPTV system include the programming, streaming transmission system and viewing devices. This diagram shows that the programming system can receive live or stored programming media. The streaming transmission system manages how the media is converted and sent through the Internet. Viewing devices include multimedia computers, televisions with adapter boxes (STBs) and IP televisions. Chris described some of the key challenges that keep companies for developing and providing their own television services and ways to overcome them. These challenges usually include system options, content distribution, content management and systems administration. Chris also explained that Internet IPTV systems can use soft clients or set top boxes to allow viewers to have access to television programs.

Figure 1., Internet IPTV System

IPTV System Options

IPTV systems are the combination of equipment, protocols and transmission lines that are used to provide television communication services over IP networks. IPTV system options include network operator, shared network operator and virtual (hosted) system operation.

Network Operator

A network operator is company that manages the network equipment parts of communications. Network operators are an On-Net (On the Controlled Network) solution where they control and manage all aspects of the network. Network operators can setup a walled garden to precisely deliver and control what the user experiences on their system. 
Network operators have full control of the content selection, headend, distribution and access network. Network operators obtain licenses to install (such as installing fiber networks) and operate their networks. Network operators can select and even define their own protocols (control processes) and they can directly control of quality of service experience by customers. Network operators are usually regulated by several types of government agencies including communications and trade commissions.

A network operator focuses on the geographic areas where they own and operate their networks. Because the cost of the network is completely paid for by the network operator, the key objective of the network operator is to get a high take rate. Take rate is the percentage of customers that sign up for service in their geographic area. This means that the network operator usually has a mass market content programming option (network TV) that will appeal to most of the customers. To have a high take up rate, the network operator usually offers traditional network programming 

Operational costs can be high for network operators, especially for smaller systems. The number of skill sets needed to operate and manage the content and distribution network can be very high. Telephone companies typically employ 3 to 4 employees per 1,000 customers and they only manage the connection part. Additional employees with content management experience would be required to manage the content portion of the network. Because network operators control and manage their "closed" networks and these systems can have strong security controls, content sources tend to be willing to let the network operator to distribute content.

The content costs for network operators are usually high for popular network programming. The typical content cost of a cable TV system is 30% to 50% of gross revenues and the amount of discount a network operator can receive usually depends on the number of programs and subscribers it has. The smaller the number of viewers, the higher the cost of content.

The capital cost (Capex) per subscriber can range between $1,000 to $2,000 for large systems and even higher for smaller systems that must distribute the equipment cover over smaller numbers of customers.

Capital costs include headend equipment ($1 million+ for basic headend), asset management systems, transmission equipment, distribution lines, access connections and termination equipment.

The time to market for network operators can be 1 to 2 years or more. Network operators need to obtain licenses, networks need to be built and systems need to be setup and tested.

Shared Network (Hybrid)

Shared networks are systems that allow companies to share and control the resources of other networks or systems. An example of a shared network is an interconnection service provider (long distance company) that can setup and manage broadband lines 
Shared networks is an Off-Net (Off the Controlled Network) solution where control and management of systems and services may be limited. Shared network operators may have remote control of access and full control of content network operation. Shared network operators may have control of the content selection, headend, distribution and access network through the use of interface controls between networks. While shared network operators may be able to control and provision systems for quality of service, shared network operators may have limited controls or responsibilities that can be difficult to define (not my fault). This may lead to challenges resolving QoS issues.

Shared network operators can expand into geographic areas where they can find partner networks. Because the cost of the network is shared by two or more partners, the key objective of the shared network operator is to focus on their part such as programming and customer care. 
Operational costs can be moderate for shared network operators. The number of skill sets need to operate and manage the content and distribution network is reduced as each partner has their own support systems. 

Because shared network operators may be able to control and manage their networks. These systems can have strong security controls. If the shared network operator can demonstrate that their system is secure, content sources are likely to be willing to let the network  operator to distribute content if the right digital rights management systems are in place. Because shared network operators may have several systems with many customers, the cost of content may be lower because of the increased volume of content demand.
The capital cost (Capex) per subscriber for shared networks can range between $200 to $500. This cost includes the STB and some hardware and control system integration.

The time to market for shared systems can range from 6 to 12 months as systems or access networks may already been in place and integration of these systems is the key steps.

Virtual (Hosted) Network

A virtual network operator is a service provider that uses the communication systems of other communication network operators to provide communication services. Virtual operators are over the top services. Over the top services are applications and their associated communication transmission provided for the benefit of the user through the use of underlying services.

Figure 2., IPTV System Options

Virtual operators have control of the content selection and distribution. Virtual operators need to focus on learning the restrictions for content distribution and delivery in many countries. Virtual operators use systems and protocols (control processes) developed by other companies. While the control of features and services may be set by the virtual host, virtual operators may customize features and service through the use of programming scripts or software applications 
Virtual operator focus on the content strategies where they target specific types of viewers. Because the viewer (their Internet broadband connection) pays for the cost of the distribution network, the key objective of the network operator is provide very focused programming.

Operational costs can be low for virtual operators, even for smaller systems. The number of skill sets need to operate and manage the  content and distribution network can be a very small number of people. The operational costs for virtual operator's shifts from running a network to managing content that is promoted and distributed through many countries.

The content offered by virtual operators can range from a limited number of specialty channels to popular network programming. Because programming is transmitted through the public Internet to consumers that are not directly controlled by the virtual operator, it may be more difficult to obtain licenses to distribute more popular content. 

The capital cost (Capex) per subscriber can range between $0 to $200. The key capital cost is the IPTV STB which is approximately $100 to $200 and customers may be required to buy their own STB. Because the customer interest is to obtain programming that may not be available anywhere else, this gives the virtual operator added ability to charge setup and equipment fees.

Time to market can be weeks to months because the systems are already setup and only the content, branding and distribution channels need to be established.

Figure 2 shows several options that Internet IPTV operators have to provide television services. This table shows that IPTV system operators can own and operate their own system, they can run a system that is owned by another company or they can use an Internet IPTV host company. 

Chris Wagner has been a driving force in the technology industry for over 20 years. As Executive Vice President and Co Founder of NeuLion, Mr. Wagner's position in marketplace strategy targets the revolution currently underway as the television and internet video industries converge.